A Partner in Pinheiro LP, ADETOKUNBO DAVIES and Junior Associate , AKINLOLUWA TOKEDE examine the decision of the Court of Appeal in La Casera Company PLC v Mr. Prahlad Kottappurath Gangadharam (2025) which represents a significant development in the jurisprudence on restraint of trade clauses in employment contracts.
The Court’s nuanced approach in partially upholding a five-year non-compete clause while declaring a perpetual restraint void demonstrates a sophisticated understanding of the competing interests between employer protection and employee rights.
This decision establishes important precedents for the enforceability of restraint clauses, emphasizing the necessity of temporal limitations, legitimate business interests, and compliance with international human rights standards. The judgment provides crucial guidance for legal practitioners and companies on drafting enforceable restraint clauses while respecting Constitutional and International law principles.
Introduction
The tension between an employer’s legitimate need to protect confidential information and trade secrets against an employee’s fundamental right to earn a living has long been a source of legal complexity in Nigerian employment law. Restraint of trade clauses, designed to prevent former employees from competing with their previous employers or joining competitors, must navigate the delicate balance between protecting genuine business interests and avoiding oppressive restrictions that unduly limit an individual’s economic freedom.
The Court of Appeal’s decision in La Casera Company PLC v Mr. Prahlad Kottappurath Gangadharam provides significant clarification on this area of law, establishing important parameters for the enforceability of such clauses.
History of the Principle on Restraint of Trade and the Legal Framework
The Common Law position is that contracts in restraint of trade are against public policy and therefore prima facie void. This is to the effect that as a matter of general principle, covenants in restraint of trade are not enforceable.
This principle was laid out explicitly by Lord Macclesfield in the English case of Mitchell vs. Reynolds stating that all contracts whether parole or under seal, whether by bond, covenant, or promise, with or without consideration, which are in general restraint of trade or of any particular avocation or profession are absolutely void, because they are against public policy and oppressive on individual industry.
However, under this case there seemed to be a distinction between general restraint and limited restraint especially where the limitation referred to time, space or persons.
Usually, as was the application of the doctrine in this case, general restraints are held to be unreasonable while limited restraints are regarded as valid and duly enforced.
However, with the case of Nordenfelt v The Maxim Nordenfelt Guns and Ammunitions Co. the modern law principle of restraint of trade was birthed, giving way to the restrictive interpretation under common law.
The House of Lords in this case held that; “all covenants in restraint of trade are void as being contrary to public policy in the absence of special circumstances justifying them.” The Court in Maxim Nordenfelt’s case applied the doctrine of severance (which seeks to excise an invalid restraint clause from the valid). Here, the special circumstance that resulted in some parts of the restrictive covenant being declared reasonable and valid was that it protected the interest sold.
From this case, there was a clear distinction established between general and partial restraint of trade clauses, which has received various qualifications and further interpretations with the passage of time.
The legal framework governing restraint of trade clauses in Nigeria derives from multiple sources, creating a complex web of principles that courts must navigate. At common law, as was stated above, restraint of trade clauses are prima facie void and unenforceable, as established in Nordenfelt v The Maxim Nordenfelt Guns and Ammunitions Co. and Herbert Morris Ltd. v Saxelby.
The foundational principle, as articulated in Horner v Graves, holds that “a man is entitled to exercise any lawful trade or calling as when he wills and the law has always guarded jealously any interference with trade.”
However, Nigerian courts have recognized that such clauses may be enforceable where they satisfy the reasonableness test established in common law jurisprudence.
The Supreme Court in Andreas I. Koumoulis v. Leventis Motors Ltd held that covenants will be enforced where they afford adequate protection to the covenantee and are reasonable in the interest of the parties.
This position reflected the earlier positions of the Nigerian Courts on the issue of restraint of trade clauses in cases such as Leontaritis v Nigerian Textile Mills Ltd.
The Constitutional dimension however adds another layer of complexity. Section 35 of the Constitution of the Federal Republic of Nigeria 1999 (as amended) guarantees the right to personal liberty, which encompasses freedom to engage in lawful activities including entering into contracts.
Additionally, Nigeria’s ratification of the International Covenant on Economic, Social and Cultural Rights (ICESCR) in 1993 introduces Article 6(1), which recognizes “the right to work, which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts.”
The Case of La Casera Company v Prahlad Kottappurath Gangadharam
The case originated from an employment dispute between La Casera Company PLC and its former Chief Operating Officer, Mr. Prahlad Kottappurath Gangadharam. Mr. Prahlad held the most senior operational position at La Casera, with responsibilities including day-to-day operations, strategic planning, and supervision of multiple department heads across finance, logistics, manufacturing, and sales. His employment contract contained Clause 23, a restraint of trade provision with two segments: “a five-year prohibition on working in the same or similar field in Nigeria after termination, and a perpetual ban on working for competing beverage companies after the initial five-year period”.
Mr. Prahlad resigned from La Casera on November 27, 2012, and subsequently joined a direct competitor to La Casera as a New Business Development Manager before the five-year restriction period expired.
La Casera filed a suit at the National Industrial Court in October 2013, seeking declarations of breach, injunctive relief, as well as damages.
The company presented evidence including meeting minutes showing Mr. Prahlad’s involvement in strategic planning, organizational charts demonstrating his supervisory authority, and testimony suggesting that the competitor’s reintroduction of a drink shortly after his employment there was connected to confidential information he possessed.
Mr. Prahlad filed a counter-claim challenging Clause 23 as unreasonable, oppressive, and contrary to public policy, specifically arguing it violated the International Covenant on Economic, Social and Cultural Rights.
The National Industrial Court ruled entirely in his favor on March 17, 2016, dismissing La Casera’s claims and declaring Clause 23 null and void.
The court found insufficient evidence of similar job descriptions between the companies, inadequate proof of trade secrets being compromised, and concluded that La Casera had failed to establish any legitimate interest requiring protection.
Dissatisfied with this outcome, La Casera appealed to the Court of Appeal, raising fourteen grounds condensed into three main issues inviting the Court of Appeal to consider whether La Casera had legitimate interests to protect and whether the restraint of trade agreement was illegal and unreasonable.
The appeal was heard by a three-member panel of the Lagos Division of the Court of Appeal, with Justice Ngozika Uwazurunonye Okaisabor (J.C.A.) delivering the lead judgment that would ultimately establish new precedents for restraint of trade jurisprudence in Nigeria.
The Court of Appeal in La Casera’s case (supra) explicitly considered the Constitutional and International law principles governing the principle of restraint of trade, marking a significant development in how Nigerian Courts approach restraint of trade cases, which for the most part has placed major emphasis on the protection of the rights of the restrained party without much focus being given to the rights of the party seeking to restrain. The Court referenced the provisions of Sections 254(c)(2) and 254(i)(f) of the Constitution and the decision in Maduka v Microsoft Nig. Ltd & Ors, demonstrating the growing influence of international human rights standards in domestic employment law.
Key Factors for Enforceability
The La Casera decision crystallizes the criteria that Nigerian Courts will consider when determining the enforceability of restraint clauses. The Court of Appeal, per Okaisabor (J.C.A.), established a comprehensive framework based on several key factors.
Legitimate Business Interest:
The employer must demonstrate a genuine protectable interest beyond mere prevention of competition. The Court held in Nissan (Nig) Ltd v Yoganathan that “a restraint in a contract merely to prevent competition will not be enforced by the courts.”
In La Casera, the Court found that the appellant had a legitimate interest in protecting confidential business information, including strategic plans, distribution strategies, and other commercially sensitive data.
Reasonableness in Temporal Duration:
The Court distinguished between reasonable time limitations and excessive or perpetual restraints. The five-year restriction was deemed reasonable, while the perpetual restraint was declared void. The decision in Tanksale v Robee Medical Centre Ltd was applied, emphasizing that restrictions must be “justifiable in the circumstances being reasonable from the point of view of the parties and public.”
Geographical Scope:
Where an employer’s operations cover the entire country, a nationwide restraint may be reasonable. The Court noted that geographical coverage should align with the employer’s business scope, referencing decisions in Foster & Son Ltd v Suggeth, Esso Petroleum Co. Ltd v Harper’s Grace Ltd, and Andrews Advertising Pty Ltd v Andrews.
In the Nigerian case of Anglo-Africa Supply Co. Ltd. v John Benvie the Court held that a restraint of trade agreement restraining an employee from engaging directly or indirectly in any business in competition with that of the former employer six (6) months after leaving the employment of the employer was unreasonably too wide as regards its geographical coverage and unreasonably comprehensive as regards the business from which the defendant was to be excluded from engaging.
However, this principle relating to the geographical coverage is applied based on the merits of the fact of each case brought before the Courts.
Nature of Employee’s Position and Access to Confidential Information:
The Court, in La Casera’s case emphasized that the employee’s seniority in the appellant’s company and access to trade secrets are crucial factors. The respondent’s position as Chief Operating Officer, with supervision over multiple departments and involvement in strategic decision-making, was significant in establishing the appellant’s legitimate interest.
Scope of Activities Restricted:
The restriction must not be wider than necessary to protect the employer’s interests. The Court applied the principle from VEE GEE (Nig) Ltd v Contract (Overseas) Ltd that courts “will enforce by injunction negative covenants in restraint of trade where such covenants are not wider than reasonably necessary for the protection of the covenantee and are not injurious to public interest.”
Jurisprudence & Case Law Analysis:
The La Casera decision represents an evolution in Nigerian restraint of trade jurisprudence, building upon established precedents while introducing important innovations. The Court’s approach demonstrates a sophisticated understanding of the competing policy considerations involved. It further goes beyond the surface interpretation of restraint of trade clauses ensuring that the rights of the parties concerned in the agreement are respected and upheld.
The Reasonableness Test Refined:
While maintaining adherence to the traditional reasonableness test from Morris v Saxelby (supra), the Court adopted a more nuanced approach by analyzing different segments of the restraint clause separately. This severance approach allows Courts to uphold reasonable portions while striking down excessive elements, rather than invalidating entire clauses. This is the position not just obtainable in Nigeria but in other developed jurisdictions, especially those that share the Common Law origin that Nigeria has.
Integration of International Human Rights Law:
The Court’s explicit consideration of the ICESCR marks a significant development. Justice Folasade Ayodeji Ojo’s (J.C.A.) concurring judgment particularly emphasized Article 6(1) and (2) of the ICESCR, stating that contractual provisions imposing “a blanket and indefinite ban on working within a whole industry violates this right and is patently oppressive.”
Evidence and Burden of Proof:
The Court reinforced that employers must provide concrete evidence of their legitimate interests and the employee’s access to confidential information. The decision emphasized that “averments in pleadings do not constitute evidence or proof” and that facts must be established through proper evidence. Here the court cited the case of Eyigebe v Iyaji.
Public Policy Considerations: The Court balanced private contractual rights against public policy concerns. The principle from I.N.E.C v Nyako was applied, which is that, “a private right guaranteed by the Constitution unless expressly provided otherwise by the Constitution itself, cannot be denied simply because it is personal.”
Drafting Considerations
The La Casera decision provides crucial guidance for legal practitioners drafting restraint clauses. Several key principles emerge, including:
Temporal Limitations Are Essential:
Perpetual or indefinite restraints will be struck down as contrary to public policy. Five years appears to be within the acceptable range for senior positions involving access to highly confidential information, though the specific duration should reflect the nature of the information and industry practices.
Precise Definition of Protected Interests:
Employers must clearly identify and provide evidence of specific confidential information, trade secrets, or customer relationships requiring protection. Generic assertions about “confidential information” are insufficient.
Graduated Approach:
Consider structuring clauses with different restrictions for different types of activities or competitors, allowing courts to uphold reasonable elements while striking down excessive provisions.
Geographic Scope Alignment: Ensure geographical restrictions align with the employer’s actual business operations and the employee’s exposure to confidential information in those areas.
Position-Specific Drafting: Tailor restrictions to the specific role and responsibilities of the employee. Senior executives with broad access to strategic information may justify more extensive restrictions than junior employees.
Severability Clauses:
Include clear severability provisions to preserve enforceable portions if other elements are struck down.
Consideration of International Standards:
Draft clauses with awareness of Nigeria’s international human rights obligations, particularly the ICESCR provisions on the right to work.
Conclusion
The La Casera decision represents a watershed moment in Nigerian restraint of trade jurisprudence, establishing a framework that balances employer protection with employee rights while incorporating international human rights standards.
The Court’s nuanced approach of analyzing restraint clauses segment by segment allows for more precise judicial intervention, upholding reasonable restrictions while striking down excessive provisions.
Key takeaways for practitioners include the absolute necessity of temporal limitations, the requirement for concrete evidence of legitimate business interests, and the importance of proportionality between restrictions and protected interests. The decision also emphasizes that Nigerian courts will not enforce restraints that merely prevent competition or that violate fundamental rights to work and earn a living.
The integration of the ICESCR into domestic employment law analysis signals a broader trend toward incorporating international human rights standards in Nigerian jurisprudence. This development requires practitioners to consider not only domestic precedents but also international law principles when advising on restraint clauses.
For employers, the decision provides a roadmap for creating enforceable restraint clauses while respecting employee rights. For employees, it offers protection against oppressive restrictions while acknowledging the legitimate needs of employers to protect genuine business interests.
The La Casera decision thus establishes a balanced framework that serves the interests of justice while promoting both commercial and economic certainty and individual freedom in Nigeria’s evolving employment law landscape.
